COSTS AND SUBSIDIES

Evening Post, Volume CXXXVI, Issue 3, 3 July 1943, Page 4

COSTS AND SUBSIDIES

As a means of keeping the cost of living within reasonable bounds under war conditions subsidies on certain commodities can be justified. They have been used with advantage in Great Britain and elsewhere. There has been some criticism in New Zealand on the ground that subsidies on commodities in eVeryday use—coal and sugar are two examples—are being met out of the War Expenses Account instead of out of ordinary revenue.. There is some point in this criticism, especially as a large portion of the War Expenses Account is made up ofi borrowed money, but against this j criticism can be placed the point j made by the Minister of Finance (Mr. \ Nash) when replying to the Budget j debate, that unless the subsidies had] been paid living costs would havej advanced to the point at which it| would have been difficult to resist demands for increased wages. Thus! there would have been a challenge to j the country's economic stability—the vicious circle of increased wages and increased costs would have operated. The principal weakness of subsidies is that they have the effect of covering up increases in costs and disguise the real cost of maintaining high living standards. However they may be justified in a time of emergency such as the present, it would be extremely difficult to justify the policy \yhen conditions return to 'normal. This is something that future Governments will have to guard against. Some of the subsidies now being paid operated before the war. They provided a convenient means of overcoming cost increases, whereas the correct procedure would have been to tackle costs at the base—that is, to take steps to keep costs down rather than to take steps to offset their effect after they had been allowed to rise. The principle of paying subsidies is now well established as a war measure, but when there is a return to normal conditions it will be necessary to consider very carefully the wisdom of continuing such a policy. What must be done is to concentrate on keeping costs at a reasonable level so that subsidies will not be necessary. v